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Debt Repudiation or an Interest Strike?

by on March 1, 2012
usury2

The problem with debt repudiation is that it is difficult to get the money out of circulation. Our money is credit based and if the debts are not repaid, the money will circulate forever. An interest strike is therefore the better option.

Since the start of the Credit Crunch there has been talk of debt repudiation. The basic idea is that the debt is odious and that since banks just print the money they engage in a fraudulent contract.

This is only partly true. Consider this:

If someone gets a mortgage to buy a house, would it be fair to repudiate that debt?
This person would obtain his house for free. At whose cost? Not the bank’s. They just write off the debt, go bust and get a bailout.

What banks do is capitalize the credit of the population. It is not their credit, it is ours. If somebody goes into debt with a bank and the bank creates the money for the loan, it is really society that is allowing the individual to ‘buy now, and pay later’.

In the case of the mortgage, let’s say it is a typical $100k mortgage, the debtor buys the house and then repudiates the debt. The bank writes it off, but the $100k that was created for the loan will continue to circulate. Somebody was payed with that money and we cannot just disown him.

As a result, we cannot create new credit without inflating the money supply. This is the basic problem: how are we going to get the money out of circulation? It can only be done by taxation, but that’s a form of disowning too. Not everybody would share equally (or better: equitably) in the burden either.

If we now repudiate the debt, we would have trillions all over the place that would never be payed back. To create new credit on top of that would be inflationary and probably result in rising prices. People who are not indebted would share in the burden without benefiting from the repudiation.

an Interest Strike
The problem is not debt, it’s interest. The debtor actually bought real stuff with the money he borrowed. He didn’t really borrow it from the bank, but was allowed to pay later by the community. That is the nature of credit. What we have is loan sharks usurping the credit of the population. They plunder the debtor with interest. In the case of the mortgage ($150k interest for a $100k loan over 30 years) it shows how much money we are talking about. The National debt is another case in point. At 4% the National Debt is payed in interest every 25 years, without even denting the principal itself.

That’s why it’s better to go for an interest strike. Interest is the tool of plunder, not the credit.
People no longer burdened with interest will be able to pay off the loan easily. Even Greece would be able to pay off their entire National Debt within twenty years by using the debt service they pay now to pay off the debt itself.

By paying off the debt, the money goes out of circulation. So it can be loaned back into existence again for new ventures.

The debtor pays back what he actually borrowed, which is much more fair to those who were not indebted and would not benefit from debt repudiation and would actually pay in terms of inflation.

Banks prefer debt repudiation
Why? Because they will go broke and will be compensated with ‘recapitalization’.

If we go for an interest strike, their solvency would remain intact. But they would stop being profitable. The loan shark would see its income stream dry up. Rothschild would have to content himself with a mere $500 Trillion net asset position.

Interest is the basic business model of the banks. They don’t want that touched.

Conclusion
An interest strike is the better solution. Debtors must repay, they gained when going into debt. What is wrong is plundering them with usury.

A debt repudiation would leave trillions of dollars (and euros) that would never be payed back. New credit can only be created at the cost of inflation.

An interest strike goes at the heart of the matter.

For a full program for an interest strike see:
The Wolfson Prize, I Win!

Related:
The Problem is not Debt, it’s Interest
Budget of an Interest Slave
On Interest

31 Comments
  1. Tony B. permalink

    Anthony, haven’t read all the comments here nor thought through your logic (other chores call) but must admit that, at first look, I don’t follow this argument at present. My thought is that most money is now created as “check book money” that is as bookkeeping entries, so why wouldn’t repudiation just wipe out the bookkeeping and the “money” (bank credit debt) be gone into the phony world it came from? Is your meaning that the bankers would keep the amounts on those lying books regardless of any repudiation? And that our governments would “make them good?” Which is to say that the bankers who loaned nothing but bookkeeping figures would have them replaced by governments with the people’s substance. Which means it takes dishonest government to honor such lies and demands that we must FORCE honesty on our governments; the masses, if determined, being a greater power than the bankers’ largess.

    Of course, my final thought on all this sort of thing is to force HONEST money into circulation instead of continuing to try to find ways to live (exist) with the criminally dysfunctional bank credit debt we have today.

    Tony B.

    • We don´t like the force aspect but you may be looking for Mathematically Perfected Economy. MPE will take the banks out of our money.

  2. Summer permalink

    Excellent article.

  3. I agree with you in principle, but what do you do about derivatives? We’re talking about $1.5 quadrillion in notional value, roughly equal to the estimated notional value of the entire world.

    Here’s a hilarious discussion thread, where the mises.org commenters can’t figure out what they’re supposed to think about Webster Tarpley’s economic recovery plan:

    http://mises.org/Community/forums/p/6796/101591.aspx

    I’m not clear on who owes what to whom, but it seems that these are illegitimate debts, fractionally-backed by zero-interest credit from the Fed, which are bigger than can ever possibly be paid. I’m sure some of the cash turned into real paychecks and assets, but much of it is either choking up the financial system or getting snorted up the noses of super-rich parasites.

    Unless the government seizes the assets of zombie banks, deletes the funny money and resells the real assets, we DO have too much debt in the financial system to ever return to normal business. Even if you hurt the value of the municipal bonds or pension plans tied up in these instruments, it’s better to get the unpayable debts off the books and start from there.

    • I think we should not waste too much time on derivatives. They’re just a zero sum game. They should all be cancelled. And the Top 5 US banks holding them all as the counter party should be completely disbanded and plundered from all their assets to pay back as much as possible to the unsophisticated investors (401ks and the like) who payed for the ‘insurance’.

      It’s a complete and utter fraud and it’s holding the entire world hostage.

  4. That makes a lot of sense and even I can understand it. All the money that would have gone to interest can now go to the principle. I think what’s even more important is that the stealing by usury is gone, and I think the people will be better off because interest is a sin against God. Life should improve for everyone concerned. If you read the Apocalypse of Peter you’ll see that there’s a special place in hell for people who charge interest. (Assuming it is true.)

  5. Repudiation is not the solution as it would destroy millions of innocent people through their investments, pension plans, 401-k’s etc. and it is unnecessary. Instead I would recommend a three prong attack:

    1) The U.S. should issue debt free money to repay the national debt as it becomes due. If a bank created the money to buy the treasury bonds (which is very common) the money would be destroyed upon repayment but the money in circulation already would stay there.

    2) Debt free money should be spent into circulation by states rebuilding their infrastructure.

    3) 0% interest loans must be made available. I would start with the biggest private sector credit market in the country – mortgages. The U.S. is already guaranteeing around 97% of mortgages in the U.S. (http://georgewashington2.blogspot.com/2011/03/97-of-all-us-mortgages-are-backed-by.html) so why shouldn’t they own them?

    The government could issue (debt free) the approximately $12 trillion required to buy all of the mortgages and then roll them over to 0% loans (mortgage holder must qualify).

    Larry

  6. John permalink

    I would like to see the first bank to issue loans without interest. You go to the bank, request a loan, and just repay the debt in X amount of time. I bet that bank would have a lot of customers. That will never happen because interest is double the profit.

    • That´s why banks are the problem. If the public currency was issued free of interest to the public by a public bookkeeper and not by private banks at interest, we wouldn´t have parasites running the planet.

      Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.

  7. Paul Paskey permalink

    “The wicked borrow and do not repay, but the righteous give generously;” Ps. 37:21

    Did you understand and agree to paying interest when you borrowed the money? Do you now assert that charging interest is unconscionable?

    You say the evil is interest. Doesn’t God condemn usury to the poor brother? Who is poor? Are you the banker’s brother?

    Why are you borrowing in the first place? Where is it written that you are entitled to own a house here on earth? Oh, our Father has a house with many rooms for us in heaven and “Thy will be done on earth as it is in heaven” equals a free house here on earth?

    You despise usury but want pure dross for money. “Your silver has become dross, your choice wine is diluted with water.” Isa. 1:22 it’s tough to stamp out usury without a 100% coin standard and no fractional reserve banking. It’s a package deal.

    Get out of your mortgage and rent a place to live.

    Please don’t feed the bankers.

    • Many problems with this Paul.
      It would be voluntary contract with the CHOICE the libertarians like so much, if there actually IS CHOICE.

      But if there is a Gold monopolist, where are the businessmen going to go for the credit they need?

      45% of your income is lost to interest WITHOUT BEING IN DEBT, because of ‘capital costs’ are passed through prices.

      How can I stop feeding the Banker if I rent and 75% of my rent goes to capital costs of the Land Lord?

      This is exactly why we don’t want ‘full reserve banking’. We want NO reserve banking, aka Mutual Credit. Zero interest.

      And yes: the Banker IS my brother.

      • Anthony wrote: This is exactly why we don’t want ‘full reserve banking’. We want NO reserve banking, aka Mutual Credit. Zero interest.

        Great point Anthony and I wholeheartedly agree. The old “Chicago Plan” from the 1930’s has been dusted off and brought back by Steve Zarlenga, Dennis Kuccinich and now, Bill Still is using it as the basis for his presidential run on the Libertarian ticket.

        Basically it calls for FULL RESERVE BANKING which would be a terrible mistake as you point out. I have written to all of the above and have yet to get a response from any.

        My understanding is that under variations of the Chicago Plan, banks will only be able to lend existing money. If so, this will drive up the cost of lending as depositors and others willing to lend their money will want to be compensated at a rate at least higher than government securities. In addition, the banks will mark up the interest in order to make a profit. And, the rate will go up along with the duration of the loans.

        Money could become scarcer than it is now and essentially you may create two classes; the lenders and the borrowers. The distribution of wealth could become worse than it is now as 1% of the people hold approximately 46% of the wealth.

        Why not allow commercial banks to provide new money by borrowing from a national credit pool created by congress. The money could be provided at 0% interest with transaction fees to negate the costs and to fund operations. The end result would be, lower borrowing costs to the productive economy.

        The principle being that all money is ultimately backed by the people, productive capacity and wealth of the nation – the “common wealth.” The people should have equal access to new money.

        The question of “reserves” keeps popping and I would like to clarify the way in which commercial banks qualify to make new loans. According to BIS Basel standards (capital ratio), U.S. Federal Reserve regulations (leverage ratio) and some rating and insurance agencies, banks are required to keep some “extra” capital on hand for basically two reasons. First, this is an insurance policy against an anticipated amount of defaults (the bank can accept some losses while remaining solvent). Second, money is needed to clear transaction accounts.

        The problem arises as off-balance sheet entries, derivatives and other creative bookkeeping schemes complicate the basic calculations as the amount of extra capital may be greatly over-estimated. And by allowing derivatives to enter into the risk calculations, we unwittingly create the “too-big-to-fail” trap. The answer is to dial-back regulations so that the extra operating capital truly exists and is readily available.

        Larry

        • Thanks for this Larry. Very interesting to hear about Zarlenga en Still going this way. A bad mistake. Please also note that the Money Power will regain control of the money supply within two decades or so if we start with a clean slate and with a full reserve banking system. It’s worked out here:

          http://realcurrencies.wordpress.com/2012/01/05/debt-free-money-alone-does-not-solve-compound-interest/

          Compound interest will have them mop up the entire money supply and have it interest bearing again within 20 years.

          • Good stuff Anthony, I really enjoyed your link. I agree, collecting and paying interest must be stopped as it is a form of slavery and a hidden tax by the very few on the many.

            Equally as important, interest cannot be sustained and will destroy any economy that is foolish enough to accept the interest-debt money pyramid disguised as a currency.

            Larry

        • A “bank” that “lends” the depositors money is called a brokerage.

          • Banks do not lend money.

    • Charles Crosby permalink

      Paul’s thinking is classic ‘in the box’ thinking. The UK and the US both operate in re-organisational bankruptcies, meaning that everything is prepaid and hence we carry only promises to pay (debt notes) in our wallets. This has been going on since 1789 in the case of the US Inc. and 1799 in the case of the UK Plc. There were reorganisations every 70 years which usually coincided with wars – the banksters biggest profit makers.

      When presented with an offer like a Utility Bill all you can lawfully do is write Accept for Value diagonally across it and return it for settlement.

  8. “Part of the solution is to count ALL prior interest payments against principal (falsified debts) which would make most people debt free instantly.”
    Yes, I agree.

    “We also participate in the Wolfson Price and if they have any credibality at all we will prevail.”
    Because I don’t really believe they have any credibility at all I wrote the article as a one time shot. I sent it in and they actually allowed me in, but I haven’t bothered continuing.

    However, if they ARE for real, I’m quite positive Mathematically Perfected Economy (TM) will win. I hope so, it would be quite a shocker!

  9. Obviously there is only one solution for inflation, deflation, systematic manipulation of our money and property, and inherent multiplication of debt bij interest. It´s called Mathematically Perfected Economy (since 1979). Part of the solution is to count ALL prior interest payments against principal (falsified debts) which would make most people debt free instantly. We can then continue under the strict money management rules MPE provides and experience economy for the first time in our history. We also participate in the Wolfson Price and if they have any credibality at all we will prevail.

    • Why would you give a crap about inflation or deflation? Billions of dollars are being extracted by bankers fraudulently.

      • Contracts are always set in nominal terms, not in real terms. So when real prices change, there are winners and losers. When prices go up, sellers are winners as are debtors. Buyers are losers, as are creditors. When prices go down, the sellers and the debtors turn into losers. So beyond any real economy effects inflation has on business through accounting, inflation and deflation act as transfers of income, creating winners and losers. Do we want either one of them??

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